Layer 1 Blockchain VS. Layer 2 Blockchain - A Detailed OverviewMay 31, 2022
Lets get to know blockchain layers and scalability options
Blockchain, ever since its inception in 2008, has been growing and has made a significant positive impact in multiple industries. This article will discuss a problem faced by blockchain known as scalability and the blockchain's progress in the field of scalability.
Understanding the Basic Definition of Blockchain Technology
A blockchain is a distributed database that stores information in an immutable way. This means that it is impossible to change the information once it is stored. Blockchain stores information in a digital format and is mostly known for its role in cryptocurrency transactions. Information in a blockchain is held together in groups known as blocks. Blocks, once filled, are linked to the previous block, forming a chain of data. Blockchain ensures that recorded data is secure without the need for a third party; this is the decentralization of transactions.
Defining Blockchain Scalability - A Consistent and Concise Definition
Blockchain scalability is a crucial feature of blockchain. Scalability refers to the capability of the system to accommodate a large number of users, transactions, and data. It is important for blockchain technology to compete with existing systems in scalability. For example, Bitcoin has the ability to process 4-7 transactions per second (TPS). On the other hand, Visa, an existing system, can process up to thousands of TPS.
Blockchain will only be able to surpass the existing systems in terms of trust and processing speed with adequate scalability. An entire sub-sector of the blockchain industry is now working towards improving scalability. To overcome these issues, Layer-1 and Layer-2 solutions are in place, discussed later in this article.
The Importance of Blockchain Scalability
Blockchain has many benefits, including a decentralized network, secure recordkeeping, and hassle-free transactions. However, the scalability of blockchain remains a serious concern and point of debate. Scalability is crucial to the operating system of blockchain. Every blockchain network completes a transaction with certain steps. According to their requirement, these steps utilize a huge amount of processing power and a lot of time. This would mean that transactions are stacked up one after the other and are ready to be stored, but the blockchain network would be unable to fulfill the transaction requests of all users. Scalability is essential because it ensures equality and quality for all users.
The whole problem of scalability originates from the core of blockchain: decentralization. Blockchain networks need adequate processing power and sufficient time to ensure that all transactions are safeguarded. This outcome of safeguarding user privacy and integrity of transactions is achieved through the multiple-step process, including but not limited to acceptance, mining, distribution, and verification. The increasing amount of power and time spent in decentralization results in blockchain falling behind existing systems in the field of scalability. Therefore, efforts are being made to establish concrete layer-1 and layer- 2 solutions to resolve blockchain's scalability issues.
Featuring Layer 1 Scaling Solutions
To overcome blockchain’s scalability issues to a greater extent, layer-1 and layer-2 solutions are in place. Layer 1 network is simply a blockchain itself. The layer-1 scalability solutions lay down the base layer of blockchain rules and regulations to improve scalability.
These solutions target the base rules of blockchain to make amendments that increase its speed and transaction capacity. These changes in rules are also targeted to accommodate a larger number of data and users. Examples of layer-1 scaling solutions include, but are not limited to increasing the rate at which blocks are confirmed or increasing the storage capacity of each block so it can store more data.
Some foundational updates have been made to the blockchain to achieve the layer-1 network scaling. These include:
Even though it is in its experimental nature in the blockchain sector right now, Sharding has easily become the most popular Layer-1 scaling solution. It is an adaption from the distributed databases. Sharding refers to the mechanism of formation of shards from the breakage of an entire blockchain network. The shards are the distinct datasets made from the blockchain. Shards are manageable because they do not require nodes to maintain the entire network, and they are produced by the network in parallel to its work on other numerous transactions. In their individual capacity, shards provide proofs to the mainchain to share balances and general states using the protocols laid by cross-shard communication. Zilliqa, Tezos, and Qtum are some of the networks exploring shards.
Consensus Protocol Changes
Consensus in the blockchain refers to the mechanism in blockchain that achieves the agreement on single data input by any user. Efficiency is varied between different consensus mechanisms. A rather slow consensus protocol is currently in use, known as the Proof of Work (PoW). Even though PoW guarantees security, its slow nature causes scalability issues.
On the other hand, Proof of Stake (PoS) is a consensus mechanism adopted by many newer blockchain networks. It works differently from PoW since it does not require miners to solve extensive cryptographic algorithms. Instead, PoS has an advanced system that validates and processes blocks of transaction data based on participants staking collateral in the network.
The PoS consensus mechanism, for example, will be adopted by Ethereum 2.0, which is likely to increase the capacity of the Ethereum network drastically.
Featuring Layer 2 Scaling Solutions
Layer-2 refers to the technology that works on the base layer blockchain protocol to improve scalability. These scaling solutions transfer some portion of a blockchain protocol's transactional burden to another system. This adjacent system becomes responsible for handling the network's processing. It only reports back to the main blockchain to finalize the results. This transition of burden to another system makes blockchain less congested and more scalable. Some of the examples of Layer-2 scaling solutions include:
A state channel facilitates two-way communication between a blockchain and off-chain transactional channels. A state channel is sealed off by the smart contract mechanism instead of validation by nodes of the Layer-1 network. When transactions are completed on a state channel, the final "state" of the "channel" and all its inherent transitions are recorded to the underlying blockchain. Some examples of state channels include Bitcoin lightning, The Liquid Network, Celer, and Ethereum's Raiden Network. Even though state channels compromise some degree of decentralization, they achieve greater scalability.
Sidechains are used for large batch transactions. They use an independent consensus mechanism, which is separate from the original chain. This sidechain architecture is optimized for scalability and speed. The role of the mainchain in this architecture is to maintain security, resolve any dispute and confirm transaction records. Sidechains, unlike state channels, are publicly recorded to the ledger and do not impact the mainchain.
A nested blockchain rests on top of another blockchain. The main blockchain sets out parameters for the secondary chains. The mainchain essentially controls multiple blockchain levels in the process. The main chain, known as the parent chain, delegates task to the secondary chains. Executions are carried out on the web of the secondary chains. The base blockchain does not partake in the functions of the secondary chains unless required. This distribution of tasks between secondary chains allows less burden on the main chain.
An example of Layer-2 nested blockchain infrastructure is the OMG Plasma project utilized atop the Layer-1 Ethereum protocol to facilitate faster and cheaper transactions.
Comprehensive Differences Between Layer 1 and Layer 2 Blockchain Scaling Solutions
The blockchain solutions defined above have a considerate set of differences that make them quite definitive from each other. To know more about these differences, this article has put forth these differences as a table that would help readers assess them with ease:
Layer-1 Blockchain Solution
Layer-2 Blockchain Solution
Changes were made across the base protocol system of the blockchain network to improve scalability.
Uses off-chain services or networks for improving scalability.
Larger block sizes and new consensus mechanisms were introduced for the betterment of scalability.
Transaction order management and workload processing are managed through off-chain solutions for the ramifications of the scalability solutions.
Types Influenced For Improvement
· Consensus Protocol Improvement
· Block Size Changes
· Nested Blockchains
· State Channels
Blockchain has emerged from various obstacles, and the future may see a scalable blockchain network that is efficient and provides quality to all users.
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